Landlord tax changes post election

Taxing Concerns for the Buy-to-Let Market

The UK’s property market was given an unprecedented boost as soon as the general election exit polls were announced and a majority Conservative government looked likely.

Following the surprising result, landlords up and down the country are now asking – what does this mean for me? The Conservatives ruled out rises in corporation tax, VAT, National Insurance and Income Tax but, with a mandate plug the national deficit, there are concerns that real estate taxes could be targeted for rises such as stamp duty land tax.

With the growing buy-to-let market unlikely to slow down under a Conservative government, there has never been a better time for landlords and potential landlords to now take a good look at their tax affairs. New landlords as well as more seasoned property investors need to be aware of a number of tax pitfalls and reliefs to ensure they get the most from their investments.

Andrew Stanley, specialist property tax adviser says “not every new landlord is given the proper advice at the point of sale or purchase and this can result in substantial losses, sometimes tens of thousands, perhaps even hundreds of thousands of pounds in lost tax relief.”

Top tax tips for landlords include:

Multiple Dwelling Relief (MDR)

This tax relief is often overlooked by conveyancers as it is not particularly well known. It is applicable to landlords purchasing more than one residential property at the same time from the same seller (e.g. a block of flats) or multiple properties in a linked transaction.

This tax relief changes the way stamp duty works in the investor’s favour, calculating the rate payable on the properties’ average value (their total value divided by number of properties purchased – note the minimum rate is 1%). This is still payable on the total consideration but paying, for example, an effective rate of 1% is a lot better that 4%!

If the tax relief is overlooked by the conveyancer at the point of sale, the investor could be entitled to compensation for negligent legal advice, a potential windfall of tens or even hundreds of thousands of pounds.

So, if you’re buying more than one residential property at a time make sure you claim MDR!

Don’t fall foul of ATED

If you hold property in any other way other than in your own name, it is worth checking to see if there is anything you should be sending to HMRC… before the penalty notices turn up!

ATED is payable by companies that own UK residential property (a dwelling) valued above a certain amount. This was originally set to only catch the most expensive homes valued at £2m+. As often happens though, little by little the threshold has been reduced towards £500,000, bringing many more buildings into this tax bracket.

Reliefs are available for numerous entities (developers, professional investors etc) but the vast majority still need to file a return to claim these reliefs even if there is nothing to pay. Not doing so can trigger penalties.

Consider going fully furnished to claim a 10% tax relief

For landlords owning unfurnished or partly furnished properties, the only tax relief available to help with the replacement of freestanding white goods was the renewal allowance that was scrapped by HMRC in 2012.

However, if the property can be made fully furnished then the landlord can claim a 10% wear and tear allowance. This could be well worth the cost of the beds, sofas, chairs and tables needed to bring the property into the fully furnished bracket.

Consider how you’re going to own the property

Prior to purchasing a new property for the purpose of buy-to-let, landlords are advised to consider how they will own the property to ensure they’ve got it right for their objectives. For example, a rental investment might be better owned by a limited company rather than being put in the owner’s personal name.

If the ownership of a property needs to be amended later on, it can be costly from a tax point of view, e.g. capital gains, stamp duty etc. Choosing the right vehicle for your objectives from the outset is the best way to go.

If the ownership of a property needs to be amended later on, it can be costly from a tax point of view, e.g. capital gains, stamp duty etc. Choosing the right vehicle for your objectives from the outset is the best way to go.

Capital Allowances – use it or lose it!

New legislation brought about in 2014 could block property owners from claiming their entitled tax relief. Now, if capital allowances are not correctly pooled and transferred when a building is bought or sold then the opportunity to claim on them can simply disappear and in extreme cases trigger unexpected tax charges.

Commercial landlords and some owners of large residential buildings can claim capital allowances to write off the cost of things bought for use within their business against their taxable profit, such as fitted carpets, electrical systems and even the heating/hot water systems.

In many historic cases it is not too late to claim if the right advice is sought as soon as possible, so make sure you take this into consideration if you are buying or selling.

In summary, the booming buy-to-let market will bring about a raft of new landlords as well as excitable existing property investors. Those that don’t consider the tax implications of their purchase could be doing themselves out of a huge amount of money.

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